Tweets and Hurricanes Stall Oil Rally

October 7, 2020 10:14 AM
API report showed a surprise increase in crude oil supply
Hurricane Delta
Gulf of Mexico drilling rig evacuations
Energy Report



The Phil Flynn Energy Report 


Stymied oil futures were stopped in their bullish tracks after President Trump tweeted that, "I have instructed my representatives to stop negotiating until after the election when, immediately after I win, we will pass a major Stimulus Bill that focuses on hardworking Americans and Small Business." This  came despite desperate pleas from Fed Chairman Jerome Powell that warned of devastating recessionary consequences if a bill didn’t pass. The breakdown in negotiations led to a breakdown in stocks and oil that had rallied on rising gasoline demand as well concerns about production shutdown in the Gulf Of Mexico because of Hurricane Delta.

The crude oil market also lost more ground after the API report showed a surprise increase in crude oil supply. While the increase of 951,000 barrels was modest, it didn’t help a market that was already damaged by the tweet. Still, more focus on the tightening gasoline situation as the API reported a 867,000 barrel draw. RBOB gasoline is the spot that could cause a squeeze up in prices. Distillates also fell by 1.033 million barrels.

Yet could some overnight tweets save the markets? President Trump tweeted that, "The House & Senate should IMMEDIATELY Approve 25 Billion Dollars for Airline Payroll Support, & 135 Billion Dollars for Paycheck Protection Program for Small Business. Both of these will be fully paid for with unused funds from the Cares Act. Have this money. I will sign now! Later he tweeted that he was "ready to sign" a "Stand Alone Bill for Stimulus Checks ($1,200)."

Hurricane Delta is having an impact on oil prices as well. Yesterday oil rallied as the Bureau of Safety and Environmental Enforcement reported, "That 29.22% of Gulf of Mexico oil production was shut as well as 8.59 percent of natural gas production. More will come off today. According to the US Energy Information Administration, the offshore Gulf of Mexico is home to roughly 1.9 million b/d of crude production capacity.

Yet while the storm could be a significant problem, natural gas is getting a bounce because Hurricane Delta hit Mexico. It didn’t hit it with force expected, having the market price faster bounce back for electricity and demand.

S&P Platts reported that, "Shell said it is evacuating some staff from all of its Gulf facilities. As a precautionary measure, Shell is preparing to shut down production at several assets and has begun evacuating non-essential personnel from all 9 of its assets in the Gulf of Mexico," Shell said in an October 6 statement. "All drilling rigs are securing operations.”

Norway's Equinor is in the process of evacuating crews from its Titan platform, company spokesman Erik Haaland said in an email October 6. "We expect that Titan will be fully evacuated and shut down by Tuesday," Haaland said. Chevron has begun evacuating crews and shutting in production, the major said late in an October 5 bulletin. BP said October 5 it had begun securing offshore facilities and evacuating non-essential crews from its four offshore platforms: Thunder Horse, Atlantis, Mad Dog and Na Kiki."

BHP was doing likewise at its operated Shenzi and Neptune platforms, company spokeswoman Judy Dane said, adding BHP plans to be fully evacuated and the platforms shut-in by October 7. Occidental Petroleum said it is closely tracking the storm.

I still believe oil is at a seasonal low. Look to hedge and put on bullish strategies.

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About the Author

Phil Flynn is a senior energy analyst at The PRICE Futures Group and a Fox Business Network contributor. Phil is one of the world's leading market analysts, providing individual investors, professional traders, and institutions with up-to-the-minute investment and risk management insight into global petroleum, gasoline, and energy markets.